CHICAGO--(BUSINESS WIRE)--The second paragraph, first sentence of the section labeled "Non-GAAP
Adjusted EBITDA and Non-GAAP Net Income" should read: Non-GAAP net
income totaled $15 million, or $0.48 per diluted share, in the fourth
quarter of 2016 compared to non-GAAP net income in the fourth quarter of
2015 of $40 million, or $1.21 per diluted share (instead of Non-GAAP net
income totaled $15 million, or $0.44 per diluted share, in the fourth
quarter of 2016 compared to non-GAAP net income in the fourth quarter of
2015 of $40 million, or $1.23 per diluted share)

LSC Communications, Inc. (NYSE: LKSD) today reported financial
results for the fourth quarter of 2016 and guidance for the full year of
2017.

4Q 2016 Highlights:

Net sales of $919 million compared to $1.0 billion in the fourth
quarter of 2015

GAAP net income of $9 million, or $0.26 per diluted share

Non-GAAP net income of $15 million, or $0.48 per diluted share

Non-GAAP adjusted EBITDA of $80 million, or 8.7% of net sales,
compared to $111 million, or 11.1% of net sales, in the fourth quarter
of 2015

Net cash provided by operating activities of $95 million

Non-GAAP free cash flow of $82 million

Full Year 2016 Highlights:

Net sales of $3.65 billion compared to $3.74 billion for full year 2015

GAAP net income of $106 million, or $3.23 per diluted share

Non-GAAP net income of $121 million, or $3.69 per diluted share

Non-GAAP adjusted EBITDA of $370 million, or 10.1% of net sales,
compared to $398 million, or 10.6% of net sales for full year 2015

Company issues full-year 2017 guidance

“In our first quarter as a standalone company, we are pleased to have
delivered results in line with our guidance,” said Thomas J. Quinlan
III, LSC Communications’ Chairman and Chief Executive Officer. “In 2017,
we expect to continue growing our industry-leading supply chain
management services offering and are excited to execute our strategy as
we enter our first full year as a standalone public company.”

Net Sales

Fourth quarter net sales were $919 million, down $85 million, or 8.5%,
from the fourth quarter of 2015. After adjusting for the December 2,
2016 acquisition of Continuum, changes in foreign exchange rates, and
pass-through paper sales, organic sales decreased 6.3% from the fourth
quarter of 2015. The decrease in organic net sales was due to lower
volume and price pressures in the Print segment.

GAAP Net Income

Fourth quarter 2016 net income was $9 million, or $0.26 per diluted
share, compared to net income of $38 million, or $1.17 per diluted
share, in the fourth quarter of 2015. The fourth quarter of 2016
includes $18 million of interest expense related to debt issued in
connection with the October 1 separation from RR Donnelley & Sons
Company, while no interest expense was allocated to LSC Communications
in the fourth quarter of 2015. Also, fourth-quarter net income included
after-tax charges of $6 million and $2 million in 2016 and 2015,
respectively, both of which are excluded from the presentation of
non-GAAP net income. Additional details regarding the amount and nature
of these adjustments and other items are included in the attached
schedules.

Non-GAAP Adjusted EBITDA and Non-GAAP Net Income

Non-GAAP adjusted EBITDA in the fourth quarter of 2016 was $80 million,
or 8.7% of net sales, compared to $111 million, or 11.1% of net sales,
in the fourth quarter of 2015. The decrease in non-GAAP adjusted EBITDA
was primarily due to volume declines and price pressure in the Print
segment, a lower LIFO reserve release in 2016 compared to 2015, and an
increase in healthcare costs, partially offset by ongoing cost control
initiatives.

Non-GAAP net income totaled $15 million, or $0.48 per diluted share, in
the fourth quarter of 2016 compared to non-GAAP net income in the fourth
quarter of 2015 of $40 million, or $1.21 per diluted share. The fourth
quarter of 2016 includes $18 million of interest expense related to debt
issued in connection with the separation from RR Donnelley, while no
interest expense was allocated to LSC Communications in 2015 the fourth
quarter of 2015. Reconciliations of net income to non-GAAP adjusted
EBITDA and non-GAAP net income are presented in the attached schedules.

Certain components of the guidance given in the table above are provided
on a non-GAAP basis only, without providing a reconciliation to guidance
provided on a GAAP basis. Information is presented in this manner,
consistent with SEC rules, because the preparation of such a
reconciliation could not be accomplished without "unreasonable efforts."
The Company does not have access to certain information that would be
necessary to provide such a reconciliation, including non-recurring
items that are not indicative of the Company's ongoing operations. Such
items include, but are not limited to, restructuring charges, impairment
charges, spinoff-related transaction expenses, pension settlement
charges, acquisition-related expenses, gains or losses on investments
and business disposals, losses on debt extinguishment and other similar
gains or losses not reflective of the Company's ongoing operations. The
Company does not believe that excluding such items is likely to be
significant to an assessment of the Company's ongoing operations, given
that such excluded items are not indicators of business performance.

Conference Call

LSC Communications will host a conference call and simultaneous webcast
to discuss its fourth-quarter results today, Thursday, February 23, at
10:00 a.m. Eastern Time (9:00 a.m. Central Time). The live webcast will
be accessible on LSC Communications’ web site: www.lsccom.com.
Individuals wishing to participate must
register in advance at the following link.
After registering, participants will receive dial-in numbers, a
passcode, and a link to access the live event. A webcast replay will be
archived on the Company’s web site for 90 days after the call.

About LSC Communications

LSC Communications (NYSE: LKSD) is a global leader in traditional and
digital print, print-related services and office products that serves
the needs of publishers, merchandisers and retailers. The Company’s
service offering includes e-services, warehousing and fulfillment and
supply chain management. LSC utilizes a broad portfolio of technology
capabilities coupled with consultative attention to clients' needs to
increase speed to market, reduce costs, provide postal savings to
customers and improve efficiencies. Strategically located operations
provide local service and responsiveness while leveraging the economic,
geographic and technological advantages of an international organization.

This news release contains certain non-GAAP measures. The Company
believes that these non-GAAP measures, such as non-GAAP adjusted EBITDA,
non-GAAP net income and free cash flow, when presented in conjunction
with comparable GAAP measures, provide useful information about the
Company’s operating results and liquidity and enhance the overall
ability to assess the Company’s financial performance. The Company uses
these measures, together with other measures of performance under GAAP,
to compare the relative performance of operations in planning, budgeting
and reviewing the performance of its business. Non-GAAP adjusted EBITDA,
non-GAAP net income and free cash flow allow investors to make a more
meaningful comparison between the Company’s core business operating
results over different periods of time. The Company believes that
non-GAAP adjusted EBITDA, non-GAAP net income and free cash flow, when
viewed with the Company’s results under GAAP and the accompanying
reconciliations, provides useful information about the Company’s
business without regard to potential distortions. By eliminating
potential differences in results of operations between periods caused by
factors such as depreciation and amortization methods, historic cost and
age of assets, financing and capital structures, taxation positions or
regimes, restructuring, impairment and other charges and gain or loss on
certain equity investments and asset sales, the Company believes that
non-GAAP adjusted EBITDA and non-GAAP net income can provide useful
additional basis for comparing the current performance of the underlying
operations being evaluated. By adjusting for the level of capital
investment in operations, the Company believes that free cash flow can
provide useful additional basis for understanding the Company’s ability
to generate cash after capital investment and provides a comparison to
peers with differing capital intensity.

Forward-Looking Statements

This news release may contain "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and the U.S. Private Securities Litigation Reform Act of 1995.
Readers are cautioned not to place undue reliance on these
forward-looking statements and any such forward-looking statements are
qualified in their entirety by reference to the following cautionary
statements. All forward-looking statements speak only as of the date of
this news release and are based on current expectations and involve a
number of assumptions, risks and uncertainties that could cause the
actual results to differ materially from such forward-looking
statements, including risks associated with the ability of LSC
Communications to perform as expected as a separate, independent entity
and risks associated with the volatility and disruption of the capital
and credit markets, and adverse changes in the global economy. Readers
are strongly encouraged to read the full cautionary statements contained
in LSC’s filings with the SEC. LSC disclaims any obligation to update or
revise any forward-looking statements.

LSC Communications, Inc.

Consolidated and Combined Balance Sheets

At December 31, 2016 and December 31, 2015

(in millions, except share and per share data)

(UNAUDITED)

December 31, 2016

December 31, 2015

Assets

Cash and cash equivalents

$

95

$

95

Receivables, less allowances for doubtful accounts of $10 (2015: $11)

667

617

Inventories

193

218

Prepaid expenses and other current assets

21

30

Total Current Assets

976

960

Property, plant and equipment - net

608

718

Goodwill

84

81

Other intangible assets - net

131

148

Deferred income taxes

57

36

Other noncurrent assets

96

68

Total Assets

$

1,952

$

2,011

Liabilities

Accounts payable

$

294

$

289

Accrued liabilities

237

203

Short-term and current portion of long-term debt

52

2

Total Current Liabilities

583

494

Long-term debt

742

3

Pension liabilities

279

1

Deferred income taxes

2

152

Other noncurrent liabilities

106

84

Total Liabilities

1,712

734

Commitments and Contingencies

Equity

Common stock, $0.01 par value

Authorized: 65,000,000 shares

Issued: 32,449,669 shares in 2016

—

—

Additional paid-in capital

770

—

Retained earnings

1

—

Accumulated other comprehensive loss

(531

)

(205

)

Net parent company investment

—

1,482

Total Equity

240

1,277

Total Liabilities and Equity

$

1,952

$

2,011

On October 1, 2016, LSC Communications, Inc. ("the Company") completed
its separation from R.R. Donnelley & Sons ("RRD"). Prior to the
separation, the Company's combined financial statements were derived
from RRD's consolidated financial statements and accounting records. On
October 1, 2016, the Company recorded certain separation-related
adjustments related to certain assets and liabilities which were
distributed as part of the separation from RRD, resulting in a net $244
million decrease to equity. This primarily included a net benefit
obligation of $358 million related to pension plans and workers’
compensation liabilities of $39 million, of which $11 million was
short-term and $28 million was long-term, and a workers’ compensation
recovery asset of $5 million.

LSC Communications, Inc.

Consolidated and Combined Statements of Income

For the Three and Twelve Months Ended December 31, 2016 and 2015

(in millions, except per share data)

(UNAUDITED)

For the Three Months

For the Twelve Months

Ended December 31,

Ended December 31,

2 0 1 6

2 0 1 5

2 0 1 6

2 0 1 5

Net sales

$

919

$

1,004

$

3,654

$

3,743

Cost of sales (1)

708

765

2,823

2,874

Cost of sales with RRD and affiliates (1)

73

60

208

216

Total cost of sales

781

825

3,031

3,090

Selling, general and administrative expenses (SG&A) (1)

63

69

259

280

Restructuring, impairment and other charges - net

7

5

18

57

Depreciation and amortization

41

47

171

181

Income from operations

27

58

175

135

Interest expense (income) - net

18

—

18

(3

)

Investment and other income - net

(1

)

—

—

—

Income before income taxes

10

58

157

138

Income tax expense

1

20

51

64

Net income

$

9

$

38

$

106

$

74

Net income per share:

Basic net earnings per share

$

0.26

$

1.17

$

3.25

$

2.27

Diluted net earnings per share

$

0.26

$

1.17

$

3.23

$

2.27

Weighted average number of common shares outstanding:

Basic

32.5

32.4

32.5

32.4

Diluted

32.8

32.4

32.8

32.4

Additional information:

Gross margin (1)

15.0

%

17.8

%

17.0

%

17.4

%

SG&A as a % of net sales (1)

6.9

%

6.9

%

7.1

%

7.5

%

Operating margin

2.9

%

5.8

%

4.8

%

3.6

%

Effective tax rate

10.0

%

34.5

%

32.5

%

46.4

%

(1) Exclusive of depreciation and amortization

(2) On October 1, 2016, RRD distributed approximately 26.2 million
shares of LSC Communications common stock to RRD shareholders. RRD
retained an additional 6.2 million shares. For periods shown above
prior to the separation, basic and diluted earnings per share and
the average number of shares outstanding were retrospectively
restated for the number of LSC Communications, Inc. shares
outstanding immediately following the separation, 32.4 million
shares.

Purchase accounting inventory adjustments: Recognition of charges as
a result of inventory purchase accounting adjustments.

LSC Communications, Inc.

Reconciliation of GAAP to Non-GAAP Measures

For the Three Months Ended December 31, 2016 and 2015

(in millions, except per share data)

(UNAUDITED)

For the Three Months Ended

For the Three Months Ended

December 31, 2016

December 31, 2015

Net income per diluted

Net income per diluted

Net income

share

Net income

share

GAAP basis measures

$

9

$

0.26

$

38

$

1.17

Non-GAAP adjustments:

Restructuring, impairment and other charges - net (1)

4

0.14

4

0.11

Spinoff-related transaction expenses (2)

2

0.08

—

—

Income tax adjustment (3)

—

—

(3

)

(0.09

)

Purchase accounting inventory adjustment (4)

—

—

1

0.02

Total Non-GAAP adjustments

6

0.22

2

0.04

Non-GAAP measures

$

15

$

0.48

$

40

$

1.21

(1)

Restructuring, impairment and other charges - net: Operating results
for the three months ended December 31, 2016 and 2015 were affected
by the following pre-tax restructuring charges of $7 million ($4
million after-tax) and $5 million ($4 million after-tax),
respectively:

2016

2015

Employee termination costs (a)

$

4

$

2

Other restructuring charges (b)

3

2

Impairment charges - net (c)

(1

)

—

Other charges (d)

1

1

Total restructuring, impairment and other charges - net

$

7

$

5

(a) For the three months ended December 31, 2016, employee
termination costs resulted from the expected closure of another
facility in the first quarter of 2017 and the reorganization of
certain operations. For the three months ended December 31, 2015,
employee termination costs resulted from the reorganization of
certain operations.

(b) Includes lease termination and other facility costs.

(c) Impairment charges primarily related to gain on the sale of
previously impaired assets for the three months ended December 31,
2016.

Spinoff-related transaction expenses: Included pre-tax charges of $4
million ($2 million after-tax) for one-time transaction expenses
associated with the separation from RRD for the three months ended
December 31, 2016.

(3)

Income tax adjustment: Included a tax benefit of $3 million that was
recorded due to an unfavorable court decision related to payment of
prior year taxes in an international jurisdiction for the three
months ended December 31, 2015.

(4)

Purchase accounting inventory adjustment: Included a pre-tax charge
of $1 million ($1 million after-tax) as a result of an inventory
purchase accounting adjustment for Courier Corporation ("Courier")
for the three months ended December 31, 2015.

Note: The income tax impact is calculated using the tax rate in
effect for the non-GAAP adjustments.

LSC Communications, Inc.

Reconciliation of GAAP to Non-GAAP Measures

For the Twelve Months Ended December 31, 2016 and 2015

(in millions, except per share data)

(UNAUDITED)

For the Twelve Months Ended

For the Twelve Months Ended

December 31, 2016

December 31, 2015

Net income per diluted

Net income per diluted

Net income

share

Net income

share

GAAP basis measures

$

106

$

3.23

$

74

$

2.27

Non-GAAP adjustments:

Restructuring, impairment and other charges - net (1)

12

0.37

39

1.20

Spinoff-related transaction expenses (2)

3

0.09

—

—

Acquisition-related expenses (3)

—

—

13

0.40

Purchase accounting inventory adjustment (4)

—

—

7

0.21

Income tax adjustment (5)

—

—

6

0.19

Total Non-GAAP adjustments

15

0.46

65

2.00

Non-GAAP measures

$

121

$

3.69

$

139

$

4.27

(1)

Restructuring, impairment and other charges - net: Operating results
for the twelve months ended December 31, 2016 and 2015 were affected
by the following pre-tax restructuring charges of $18 million ($12
million after-tax) and $57 million ($39 million after-tax),
respectively:

2016

2015

Employee termination costs (a)

$

8

$

20

Other restructuring charges (b)

7

7

Impairment charges - net (c)

—

8

Other charges (d)

3

22

Total restructuring, impairment and other charges - net

$

18

$

57

(a) For the twelve months ended December 31, 2016, employee
termination costs resulted from one facility closure in the Print
segment, the expected closure of another facility in the first
quarter of 2017 and the reorganization of certain operations. For
the twelve months ended December 31, 2015, employee termination
costs resulted from the closure of two facilities in the Print
segment, the integration of Courier and the reorganization of
certain operations.

(d) For the twelve months ended December 31, 2016, other charges
related to the Company's multi-employer pension plan withdrawal
obligations unrelated to facility closures. For the twelve months
ended December 31, 2015, the Company recorded other charges,
including integration charges of $19 million for payments made to
certain Courier employees upon the termination of Courier’s
executive severance plan, immediately prior to the acquisition.

(2)

Spinoff-related transaction expenses: Included pre-tax charges of $5
million ($3 million after-tax) for one-time transaction expenses
associated with the separation from RRD for the twelve months ended
December 31, 2016.

(3)

Acquisition-related expenses: For the twelve months ended December
31, 2015, pre-tax charges of $14 million ($13 million after-tax)
related to legal, accounting and other expenses associated with
completed acquisitions.

(4)

Purchase accounting inventory adjustment: Included pre-tax charges
of $11 million ($7 million after-tax) as a result of an inventory
purchase accounting adjustment for Courier for the twelve months
ended December 31, 2015.

(5)

Income tax adjustment: Included tax expense of $6 million that was
recorded due to an unfavorable court decision related to payment of
prior year taxes in an international jurisdiction for the twelve
months ended December 31, 2015.

Note: The income tax impact is calculated using the tax rate in
effect for the non-GAAP adjustments.

LSC Communications, Inc.

Segment GAAP to Non-GAAP Adjusted EBITDA and Margin Reconciliation

For the Three Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

Print

Office Products

Corporate

Consolidated

For the Three Months Ended December 31,
2016

Net sales

$

789

$

130

$

—

$

919

Income (loss) from operations

27

16

(16

)

27

Operating margin %

3.4

%

12.3

%

nm

2.9

%

Investment and other income-net

—

—

(1

)

(1

)

Non-GAAP Adjustments

Depreciation and amortization

36

4

1

41

Restructuring charges - net

6

—

1

7

Spinoff-related transaction expenses

—

—

4

4

Impairment charges - net

(1

)

—

—

(1

)

Other charges

1

—

—

1

Total Non-GAAP adjustments

42

4

6

52

Non-GAAP Adjusted EBITDA

$

69

$

20

$

(9

)

$

80

Non-GAAP Adjusted EBITDA margin %

8.7

%

15.4

%

nm

8.7

%

Capital expenditures

$

11

$

—

$

2

$

13

For the Three Months Ended December 31,
2015

Net sales

$

873

$

131

$

—

$

1,004

Income from operations

43

10

5

58

Operating margin %

4.9

%

7.6

%

nm

5.8

%

Non-GAAP Adjustments

Depreciation and amortization

43

4

—

47

Restructuring charges - net

3

1

—

4

Other charges

1

—

—

1

Purchase accounting inventory adjustment

1

—

—

1

Total Non-GAAP adjustments

48

5

—

53

Non-GAAP Adjusted EBITDA

$

91

$

15

$

5

$

111

Non-GAAP Adjusted EBITDA margin %

10.4

%

11.5

%

nm

11.1

%

Capital expenditures

$

9

$

1

$

—

$

10

nm Not meaningful

LSC Communications, Inc.

Segment GAAP to Non-GAAP Adjusted EBITDA and Margin Reconciliation

For the Twelve Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

Print

Office Products

Corporate

Consolidated

For the Twelve Months Ended December 31,
2016

Net sales

$

3,127

$

527

$

—

$

3,654

Income (loss) from operations

141

54

(20

)

175

Operating margin %

4.5

%

10.2

%

nm

4.8

%

Non-GAAP Adjustments

Depreciation and amortization

154

15

2

171

Restructuring charges - net

12

—

3

15

Other charges

3

—

—

3

Pension settlement charge

—

—

1

1

Spinoff-related transaction expenses

—

—

5

5

Total Non-GAAP adjustments

169

15

11

195

Non-GAAP Adjusted EBITDA

310

69

(9

)

370

Non-GAAP Adjusted EBITDA margin %

9.9

%

13.1

%

nm

10.1

%

Capital expenditures

$

39

$

3

$

6

$

48

For the Twelve Months Ended December 31,
2015

Net sales

$

3,181

$

562

$

—

$

3,743

Income (loss) from operations

96

47

(8

)

135

Operating margin %

3.0

%

8.4

%

nm

3.6

%

Non-GAAP Adjustments

Depreciation and amortization

164

16

1

181

Restructuring charges - net

24

3

—

27

Other charges

22

—

—

22

Acquisition-related expenses

—

—

14

14

Purchase accounting inventory adjustment

11

—

—

11

Impairment charges - net

7

1

—

8

Total Non-GAAP adjustments

228

20

15

263

Non-GAAP Adjusted EBITDA

324

67

7

398

Non-GAAP Adjusted EBITDA margin %

10.2

%

11.9

%

nm

10.6

%

Capital expenditures

$

38

$

4

$

—

$

42

nm Not meaningful

LSC Communications, Inc.

Consolidated and Combined Statements of Cash Flows

For the Twelve Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

2016

2015

Net income

$

106

$

74

Adjustment to reconcile net income to net cash provided by operating
activities

Impairment charges

—

8

Depreciation and amortization

171

181

Provision for doubtful accounts receivable

6

3

Share-based compensation

8

6

Deferred income taxes

(18

)

(38

)

Changes in uncertain tax positions

—

7

Other

(2

)

(1

)

Changes in operating assets and liabilities - net of acquisition:

Accounts receivable- net

(52

)

(2

)

Inventories

29

24

Prepaid expenses and other current assets

(7

)

21

Accounts payable

13

2

Income taxes payable and receivable

1

11

Accrued liabilities and other

(24

)

(21

)

Net cash provided by operating activities

$

231

$

275

Capital expenditures

(48

)

(42

)

Acquisition of businesses, net of cash acquired

(8

)

(111

)

Proceeds from sales of other assets

6

8

Transfers from restricted cash

9

—

Other investing activities

—

24

Net cash used in investing activities

$

(41

)

$

(121

)

Proceeds from issuance of long-term debt

816

—

Payments of current maturities and long-term debt

(17

)

(72

)

Debt issuance costs

(20

)

—

Dividends paid

(8

)

—

Payments to RRD

(13

)

—

Net transfers to Parent and affiliates

(945

)

(100

)

Net cash used in financing activities

$

(187

)

$

(172

)

Effect of exchange rate on cash and cash equivalents

(3

)

(12

)

Net decrease in cash and cash equivalents

$

—

(30

)

Cash and cash equivalents at beginning of period

95

125

Cash and cash equivalents at end of period

$

95

$

95

Supplemental non-cash disclosure:

Assumption of warehousing equipment related to customer contract

$

9

$

—

Issuance of 8.0 million shares of RRD stock for acquisition of a
business

$

—

$

154

LSC Communications, Inc.

Consolidated and Combined Statements of Cash Flows

(in millions)

(UNAUDITED)

Additional Information:

2016

2015

For the Twelve Months Ended December 31:

Net cash provided by operating activities

$

231

$

275

Less: capital expenditures

48

42

Free cash flow

$

183

$

233

For the Nine Months Ended September 30:

Net cash provided by operating activities

$

136

$

156

Less: capital expenditures

35

32

Free cash flow

$

101

$

124

For the Three Months Ended December 31:

Net cash provided by operating activities

$

95

$

119

Less: capital expenditures

13

10

Free cash flow

$

82

$

109

LSC Communications, Inc.

Reconciliation of Reported to Pro Forma Net Sales

For the Three Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

Print

Office Products

Consolidated

For the Three Months Ended December 31,
2016

Reported net sales

$

789

$

130

$

919

Adjustments (1)

8

—

8

Pro forma net sales

$

797

$

130

$

927

For the Three Months Ended December 31,
2015

Reported net sales

$

873

$

131

$

1,004

Adjustments (1)

13

—

13

Pro forma net sales

$

886

$

131

$

1,017

Net sales change

Reported net sales

(9.6

%)

(0.8

%)

(8.5

%)

Pro forma net sales

(10.0

%)

(0.8

%)

(8.8

%)

Supplementary non-GAAP information:

Year-over-year impact of changes in foreign exchange (FX) rates

(0.7

%)

(0.8

%)

(0.7

%)

Year-over-year impact of changes in pass-through paper sales

(2.0

%)

---

%

(1.8

%)

Net organic sales change (2)

(7.3

%)

---

%

(6.3

%)

The reported results of the Company include the results of acquired
business from the acquisition date forward. The Company has provided
this schedule to reconcile reported net sales for the three months
ended December 31, 2016 and December 31, 2015 to pro forma net sales
as if the acquisitions took place as of January 1, 2015 for the
purposes of this schedule.

(1) Adjusted for net sales of acquired business: For the three
months ended December 31, 2016 and 2015, the adjustment to net sales
of an acquired business reflects the net sales of Continuum
Management Company, Inc. ("Continuum") (acquired December 2, 2016).

(2) Adjusted for net sales of acquired business, the impact of
changes in FX rates and pass-through paper sales.

LSC Communications, Inc.

Reconciliation of Reported to Pro Forma Net Sales

For the Twelve Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

Print

Office Products

Consolidated

For the Twelve Months Ended December 31,
2016

Reported net sales

$

3,127

$

527

$

3,654

Adjustments (1)

44

—

44

Pro forma net sales

$

3,171

$

527

$

3,698

For the Twelve Months Ended December 31,
2015

Reported net sales

$

3,181

$

562

$

3,743

Adjustments (1)

168

—

168

Pro forma net sales

$

3,349

$

562

$

3,911

Net sales change

Reported net sales

(1.7

%)

(6.2

%)

(2.4

%)

Pro forma net sales

(5.3

%)

(6.2

%)

(5.4

%)

Supplementary non-GAAP information:

Year-over-year impact of changes in foreign exchange (FX) rates

(0.9

%)

(0.5

%)

(0.9

%)

Year-over-year impact of changes in pass-through paper sales

(1.2

%)

---

%

(1.0

%)

Net organic sales change (2)

(3.2

%)

(5.7

%)

(3.5

%)

The reported results of the Company include the results of acquired
businesses from the acquisition dates forward. The Company has
provided this schedule to reconcile reported net sales for the
twelve months ended December 31, 2016 and December 31, 2015 to pro
forma net sales as if the acquisitions took place as of January 1,
2015 for the purposes of this schedule.

(1) Adjusted for net sales of acquired businesses: For the twelve
months ended December 31, 2016, the adjustment to net sales of an
acquired business reflects the net sales of Continuum (acquired
December 2, 2016). For the twelve ended December 31, 2015, the
adjustment for net sales of acquired businesses reflects the net
sales of Continuum and Courier (acquired June 8, 2015).

(2) Adjusted for net sales of acquired businesses, the impact of
changes in FX rates and pass-through paper sales.

LSC Communications, Inc.

Reconciliation of Reported to Pro Forma Net Sales - Print Segment

For the Three Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

Magazines, Catalogs,

and Retail Inserts

Book

Europe

Directories

Print

For the Three Months Ended December 31,
2016

Reported net sales

$

441

$

256

$

63

$

29

$

789

Adjustments (1)

8

—

—

—

8

Pro forma net sales

$

449

$

256

$

63

$

29

$

797

For the Three Months Ended December 31,
2015

Reported net sales

$

496

$

254

$

83

$

40

$

873

Adjustments (1)

13

—

—

—

13

Pro forma net sales

$

509

$

254

$

83

$

40

$

886

Net sales change

Reported net sales

(11.1

%)

0.8

%

(24.1

%)

(27.5

%)

(9.6

%)

Pro forma net sales

(11.8

%)

0.8

%

(24.1

%)

(27.5

%)

(10.0

%)

Supplementary non-GAAP information:

Year-over-year impact of changes in foreign exchange (FX) rates

(0.6

%)

---

%

(3.6

%)

---

%

(0.7

%)

Year-over-year impact of changes in pass-through paper sales

(3.5

%)

2.0

%

---

%

(12.5

%)

(2.0

%)

Net organic sales change (2)

(7.7

%)

(1.2

%)

(20.5

%)

(15.0

%)

(7.3

%)

The reported results of the Company include the results of acquired
business from the acquisition date forward. The Company has provided
this schedule to reconcile reported net sales for the three months
ended December 31, 2016 and 2015 to pro forma net sales as if the
acquisition took place as of January 1, 2015 for purposes of this
schedule.

(1) Adjusted for net sales of acquired business: For the three
months ended December 31, 2016 and 2015, the adjustment to net sales
of an acquired business reflects the net sales of Continuum
(acquired December 2, 2016).

(2) Adjusted for net sales of acquired business, the impact of
changes in FX rates and pass-through paper sales.

LSC Communications, Inc.

Reconciliation of Reported to Pro Forma Net Sales - Print Segment

For the Twelve Months Ended December 31, 2016 and 2015

(in millions)

(UNAUDITED)

Magazines, Catalogs,

and Retail Inserts

Book

Europe

Directories

Print

For the Twelve Months Ended December 31,
2016

Reported net sales

$

1,632

$

1,097

$

272

$

126

$

3,127

Adjustments (1)

44

—

—

—

44

Pro forma net sales

$

1,676

$

1,097

$

272

$

126

$

3,171

For the Twelve Months Ended December 31,
2015

Reported net sales

$

1,807

$

925

$

305

$

144

$

3,181

Adjustments (1)

50

118

—

—

168

Pro forma net sales

$

1,857

$

1,043

$

305

$

144

$

3,349

Net sales change

Reported net sales

(9.7

%)

18.6

%

(10.8

%)

(12.5

%)

(1.7

%)

Pro forma net sales

(9.7

%)

5.2

%

(10.8

%)

(12.5

%)

(5.3

%)

Supplementary non-GAAP information:

Year-over-year impact of changes in foreign exchange (FX) rates

(1.0

%)

---

%

(4.3

%)

---

%

(0.9

%)

Year-over-year impact of changes in pass-through paper sales

(3.6

%)

3.4

%

---

%

(6.3

%)

(1.2

%)

Net organic sales change (2)

(5.1

%)

1.8

%

(6.5

%)

(6.2

%)

(3.2

%)

The reported results of the Company include the results of acquired
businesses from the acquisition date forward. The Company has
provided this schedule to reconcile reported net sales for the
twelve months ended December 31, 2016 and 2015 to pro forma net
sales as if the acquisitions took place as of January 1, 2015 for
purposes of this schedule.

(1) Adjusted for net sales of acquired businesses: For the twelve
months ended December 31, 2016, the adjustment for net sales of an
acquired business reflects the net sales of Continuum (acquired
December 2, 2016). For the twelve months ended December 31, 2015,
the adjustment for net sales of an acquired businesses reflects the
net sales of Courier (acquired June 8, 2015) and Continuum.

(2) Adjusted for net sales of acquired business, the impact of
changes in FX rates and pass-through paper sales.

Liquidity does not include uncommitted credit facilities, located
primarily outside of the U.S.

(2)

The Company has a $400 million senior secured revolving credit
agreement (the “Revolving Credit Facility”) which expires on
September 30, 2021. The Revolving Credit Facility is subject to a
number of covenants, including, but not limited to, a minimum
Interest Coverage Ratio and a maximum Leverage Ratio, as defined in
and calculated pursuant to the Revolving Credit Facility, that, in
part, restrict the Company’s ability to incur additional
indebtedness, create liens, engage in mergers and consolidations,
make restricted payments and dispose of certain assets. There were
no borrowings under the Revolving Credit Facility as of December 31,
2016.

(3)

Net available liquidity was reduced by $12 million of outstanding
letters of credit. The Company expects additional letters of credit
related to the Company’s workers compensation plan will be in place
which will further reduce the availability by approximately $35
million to $45 million.

(4)

On February 2, 2017, the Company paid in advance the full amount of
required amortization payments, $50 million, for the year ended
December 31, 2017 for the $375 million senior secured term loan B
facility (the “Term Loan Facility”).